Netflix and the Halo Effect: Retention and Conversion, the Numbers that Count

This post is the follow-up of the analysis initiated in Netflix: more than a House of Cards, published on February 15, 2013.

A couple of weeks ago, Netflix published its 1st quarter results for 2013, without disclosing stats on its subscriber viewing habits – in keeping with its usual practice.

These results, which exceeded forecasts, confirmed that original programming online has a more-than-attractive impact for Netflix on the quality of its subscriptions.

But over and above the initial resounding success of House of Cards, which doesn’t necessarily guarantee the success of other productions like Lilyhammer or Hemlock Grove, it’s the Netflix brand itself that emerges more solid than ever in the 1st quarter. And it’s likely that this impact will carry through into the next quarter, when Arrested Development 4 goes online.

According to the company, nearly 2 million new subscribers/households were added to the total during the 1st quarter this year. These figures correspond to those in the same quarter last year, when Netflix launched its entry into new markets and topped earlier forecasts.

Structurally, nearly 10% of Netflix subscribers were signed up with free trial accounts. With its original programming operations, Netflix, by its own account, was counting on making some headway in reducing this percentage and the figures for free trial gaming as well. Truth is many customers try to game the system. They subscribe, unsubscribe later, and then re-subscribe, in order to avoid paying. But of the 2 million new accounts in 1st quarter 2013, only some 8,000 haven’t yet been converted into regular subscriptions. This is a very high conversion and retention rate, and Netflix management is frankly delighted.

It should be noted that on the basis of this momentum, Netflix will begin offering a new $11.99 / month package for customers who want to view more than two program streams simultaneously on the same account. This will build on new versions of recommendation algorithms, and effectively position the package’s appeal in different markets.

In another newsworthy move, Netflix has worked out direct payment agreements with most of its Latin American markets, making it possible to retain those customers who do not have credit cards.

Suzanne Lortie
Suzanne Lortie holds a diploma in production from the National Theatre School of Canada as well as a MBA from HEC Montreal. She became a professor at Université du Québec à Montreal in July 2012. She has also worked as a production manager and line producer for television since 1992 (major variety and cultural series that won several Gémeaux and ADISQ awards, documentaries) and is a consultant in new media strategies.
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